Shoppers will open their wallets and hit the plastic in ever-increasing numbers this year as rising economic confidence accelerates a consumer spending recovery, forecasters said on Monday.
The EY ITEM Club’s financial services outlook predicts a 3.1 per cent rise in consumer credit to £164bn this year – the best since 2010.
Even stronger gains of 3.7 per cent a year on average are pencilled in between 2015 and 2017, EY experts added.
Households have made some progress in reducing debt burdens nearly six years on from the beginning of the recession, cutting average debt to income ratios from 170 per cent to 140 per cent, making them a better bet for banks to lend to.
Andrew Goodwin, the ITEM Club’s senior economic advisor, said: “This year we expect growth across the board – as well as a swell in consumer demand for credit cards, we expect stronger demand for big-ticket purchases, driving retail finance and personal loans, which will be good news for banks.”
However, the forecaster also warned that the reliance on consumers has led to an unbalanced economic recovery so far with spending also funded by households dipping into savings. EY financial ser- vices managing partner Chris Price said: “The absence of an every-day safety net could put many households under pressure when interest rates begin to rise.”
More encouragingly, business lending is also set to recover this year after being stuck in the doldrums since 2008. EY’s forecasts show a £10bn rise in corporate credit during the year, albeit clawing back just half the £20bn drop in loans seen in 2013.
Activity among Britain’s smaller companies is also a its highest for years, according to a separate survey released today.
An index of small and medium-sized businesses, conducted by specialist funding provider Bibby Financial Services since 2007, hit its highest ever level in the last three months of 2013. The index – which tracks the monthly turnover of 4,000 firms – reached 111.4, up from 105.1 for the quarter before and 100.3 for the same period a year before. The base point of 100 was set when the index started in 2007.
Particularly strong were the manufacturing SMEs, whose index hit a new high of 137, from 127.9 in the third-quarter of the year.